Citigroup Inc (C)

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Citigroup’s First Investor Day Since 2008 Impresses
Citigroup offers ambitious multi-year earnings targets, suggesting a $100 stock price by 2020.
http://www.barrons.com/articles/citigroups-first-investor-day-since-2008-impresses-1501000953?mod=bol-social-tw
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By Andrew Bary
July 25, 2017 12:42 p.m. ET

Citigroup’s first investor day in more than nine years was worth the wait.

The bank laid out some ambitious multi-year targets in slides released this morning including an earnings target of $9 a share in 2020, up from an estimated $5.15 a share this year. That $9 projection is way above the current 2020 estimate – admittedly from only two analysts tallied on Bloomberg – of $6.78 a share and translates into an impressive 15% to 20% compound annual growth rate.

Citigroup (ticker: C) shares are up $1.87, or about 3%, to $67.97, besting the financial sector, which has gained a little over 1%. In one slide of its presentation, Citigroup suggested that its stock price could hit $100 in 2020 based on its financial projections.

The shares could have additional upside potential because Citigroup has the lowest valuation among its peers based on tangible book value, trading for just above one times its June 30 tangible book of $67.32. JP Morgan, at $93, trades for about 1.8 times tangible book. One Citigroup investor tells Barron’s today the shares could trade at $75 in the coming months as it closes some of the valuation gap versus its peers.

Citigroup justified the $100 stock in 2020 with what it called an “illustrative valuation” in a slide based on one times projected 2020 book value, and 10 times estimated 2021 earnings per share. Book value stood at $77.36 a share at the end of second quarter (tangible book as noted above was $67.32).

In a client note this morning, Barclays analyst Jason Goldberg said he expected the “slides to be well received” because it “laid out a pathway” to get to its longer-term target of a 14% return on tangible common equity.

Citigroup has the lowest returns among its peers and has been the slowest to recover from the financial crisis. Investors have been eager to see Citigroup set a roadmap to higher returns and deliver. Citigroup’s return on tangible common equity was 7.8% in the last 12 months, versus an average of 12% for its five major peers, JP Morgan, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley.

In laying out the path to $9 a share in 2020 earnings per share, Citigroup said key drivers in the coming years will be share repurchases (50%), improved business performance (40%) and future interest-rate actions (10%).

Citigroup was approved to return about $19 billion in cash to shareholders –above its projected net income -- in the coming year in the recent CCAR (Comprehensive Capital and Analysis Review) cycle by the Federal Reserve and with much of that coming in the form of share repurchase, Citigroup’s share count could drop 6% or more in the coming year.

Citigroup highlighted its business strengths at its investor day, including what it called its “unparalleled global presence” including its position as the largest global credit-card issuer and its presence in emerging markets. It gets about half its revenues from outside the US, considerably more than its peers. It also emphasized its high capital ratios and liquidity position.